FHA Options

Single-Family Insurance

"Section 203(b) is the centerpiece of FHA's single-family mortgage insurance programs and is the most commonly used program," according to FHA Outreach. Borrowers with low-to-moderate incomes and credit challenges may qualify for a 203(b) loan, which has a minimum down payment requirement of 3.5 percent. The program may be used on one-unit to four-unit dwellings, including manufactured homes that meet the Department of Housing and Urban Development (HUD) construction and safety standards, and condominium units in FHA-approved projects. The 203(b) insurance may be used for a purchase or refinance transaction with no income limits. Loan amount limits apply based on geographical area.

FHA gives home buyers the option to purchase a property in need of rehabilitation or the opportunity to make needed improvements to an existing property with the 203(k) insurance program. The loan combines temporary construction funds with a permanent home loan, eliminating the need for an intermediary construction loan. Funds for rehabilitation become available upon settlement through an escrow account. Once completed, the loan converts to a traditional mortgage based on the new appraised value of the rehabilitated home. Only single-family properties of one to four units intended for use as primary residences qualify for a rehab loan. The loan may not be used for luxury items or improvements.

FHA offers a reverse mortgage option for seniors. The Home Equity Conversion Mortgage (HECM) allows homeowners age 62 or older to access equity in their home to supplement their income and cover other expenses. As opposed to a forward mortgage, in which borrowers build equity by paying down the balance owed, the lender of the HECM reverse mortgage pays the borrower with the home's equity in a lump sum, over time or a combination of ways. The mortgage debt builds over time, but it does not have to be repaid to the lender until the borrower moves, sells or dies -- in which case the home is sold to pay off the mortgage debt.

FHA insures loans on multifamily properties, hospitals and care facilities. For many of these programs, private investors as well as government and nonprofit organizations may obtain a loan for multifamily housing if they intend to rent or sell the property to low-income and moderate-income buyers. For example, Section 221(d) programs insure loans that finance the new construction or rehabilitation of reasonably priced rental housing for middle-income families, according to HUD. Section 242 for hospitals has insured more than 400 facilities around the country, according to HUD, while Section 232 for long-term care facilities has insured more than 4,000 facilities.